El Paso Electric has agreed to refund $14 million in profits from wholesale power sales made through Enron in a proposed settlement of a federal investigation of possible price manipulation of the Western energy market in 2000 and 2001.
El Paso Electric also agreed to make no “market-based” wholesale electric sales through 2004.
The utility Thursday announced it had reached a settlement with the trial staff of the Federal Energy Regulatory Commission. The commission in August ordered a courtlike hearing to determine whether Enron and El Paso Electric violated federal law when the utility was using Enron to sell some of its power on the wholesale market in 2000 and 2001. Federal regulators had said they found evidence of possible misconduct by El Paso Electric in its dealings with Enron.
To become final, the proposed settlement must be approved by the federal commission.
In the agreement, El Paso Electric asserts it did not violate any federal law or regulation in its wholesale power sales. But the commission staff also asserts that “some or all of the legal provisions may have been violated by El Paso Electric.”
Ramiro Guzman, an El Paso Electric board member, said the company determined it made sense to settle the case and avoid a potentially long and expensive hearing process.
“It’s good to get it behind us and tend to our business,” Guzman said. “The amount of (wholesale electric) business (involved) is a very small portion of the total Enron picture.”
El Paso Electric made millions of dollars in open-market wholesale electric sales, mostly to California, in 2000 and early 2001. Those sales helped boost the utility’s profits, which were $63.6 million in 2000 and $58.4 million in 2001.
The commission staff since February has been investigating whether Enron, the Houston-based energy company that collapsed in late 2001 in an accounting scandal, or any other entity had manipulated prices in the Western electric and natural gas markets since Jan. 1, 2000. Energy prices in the Western market skyrocketed in 2000 and early 2001 when California was in an energy crisis. Besides El Paso Electric, the commission had ordered further investigation of possible misconduct by a Spokane, Wash., utility and three Enron-affiliated companies.
Teresa Souza, an El Paso Electric spokeswoman, said she did not know who would get the $14 million in refunds. The proposed agreement said the commission and utility would later determine a mechanism for refunding the money. Guzman said the money would not have to be refunded this year.
In a written statement, Gary Hedrick, El Paso Electric chief executive officer, said the proposed settlement is a “significant step” toward resolving the commission’s investigation. But, he said, other hurdles still exist. The agreement does not resolve issues with other parties involved in the case, including California government entities, the utility said.
Souza said Hedrick and other utility executives were not available for other comments Thursday because they were traveling back to El Paso from New York. They were there to celebrate the move on Wednesday of the company’s stock from the American Stock Exchange to the New York Stock Exchange.
Ted Houghton Jr., an El Paso businessman who was on the El Paso Electric board from 1996 to 1998, said the settlement makes sense for the utility even though the $14 million refund is a big “shot to the bottom line.”
“There was a lot of greed there with Enron, and it looks like El Paso Electric got swept up in that greed,” Houghton said. “When you say something is too good to be true, it’s probably right.
“I don’t blame officials at El Paso Electric. I don’t expect them to have more prowess than the SEC (Securities and Exchange Commission), stock analysts” and others who were duped by Enron, Houghton said.
Jeff Gildersleeve, a stock analyst who follows electric utilities for Argus Research, a New York investments research firm, said the proposed settlement appears to be a good step to remove the “regulatory uncertainty plaguing the company.”